Monetary and fiscal policy should be merged, which in turn changes the role of central banks

Abstract

Keeping monetary and fiscal policy separate causes economic distortions, thus the two should be merged. That is, in a recession for example, the government and central bank should simply spend more (and/or collect less tax), and fund the latter from new or “printed” money.

Merging monetary and fiscal policy necessitates a different relationship or split of responsibilities as between governments and central banks, but this is not a big problem. Plus the new relationship dispenses with an illogical element in the current typical relationship, namely that both central bank and government influence aggregate demand.

Item Type:

MPRA Paper

Original Title:

Monetary and fiscal policy should be merged, which in turn changes the role of central banks